As the Proportion of Labour Contracts That Index Wages to Prices

Multiple Choice

As the proportion of labour contracts that index wages to prices declines, we would expect that:

A) nominal wages will become more sensitive to changes in unemployment.
B) an increase in the unemployment rate will now have a smaller effect on inflation.
C) the natural rate of unemployment will decrease.
D) the natural rate of unemployment will increase.
E) an increase in the unemployment rate will now have a larger effect on inflation.